Yesterday, we examined our theory that, ‘No pure-paper money has ever survived a complete interest rate cycle.’
Now, we’re putting it to the test…again!
Our hypothesis is that all the damage done by COVID-19…and by the government’s disastrous Universal Lockdown…is only prelude.
The economy has been shrunk. Thirty-six million jobs have been lost. Industrial production and manufacturing output have been hit hard. Retail spending saw a record drop for the month of April.
Manufacturing never recovered from the crisis of 2008-2009. That left the leisure and hospitality sectors responsible for almost all the growth over the last 10 years.
And now, all things related to leisure, tourism, and hospitality — the only lifeboat available to the working classes after manufacturing sank — have been torpedoed by the feds.
Where this leads
But all of that is just the warm-up act…like second-string entertainers preparing the audience for the real tragedy to come. Yes, as dumb as it was to shut down the whole economy, it is even dumber to pretend that you can replace real economic losses with empty, worthless paper money.
We’re running out of metaphors to describe it. The old standards — printing money ‘out the wazoo’…‘to beat the band’…‘like nobody’s business’ — just don’t seem up to the challenge.
The wild money-printing began, you’ll recall, back on September 17, 2019. That was when the big banks discovered that they needed more cash to buy the government’s bonds. The Federal Reserve stepped into the overnight funding markets with their Repo Madness program. In the weeks since then, buying bonds with fake money, they’ve added $3 trillion in new money to the U.S. financial system.
And everybody knows where this is leading. Corporate debt issuance, for example, is expected to double this year. CEOs (already deep in debt) are getting money at the lowest rates in history…while bond buyers know they can expect to unload this trash onto the feds at higher prices.
And in the middle of the worst economic crisis in at least 90 years, speculators are bidding up stocks to levels ordinarily only seen at the top of a boom.
Crazy? You bet…But they’re counting on the feds’ money-printing to drive them even higher.
But let’s backtrack and look at how we got here…
How we got here
After World War II, interest rates were bouncing off a generational bottom. Thereafter, they rose for about 36 years.
America’s paper money system began on August 15, 1971. The whole fake-money scam probably would have blown up in the 1980s, but for then Fed chair Paul Volcker.
In a rare display of courage and fortitude — for a public official — he forced the dollar to act AS THOUGH it were real money. That is, while inflation and interest rates rose to double-digit levels in 1980, he put the Fed’s key lending rate up to 20%. This caused a recession. But it saved the fake-dollar system.
This ‘save’ by Volcker gave the dollar a longer lifespan than expected…and led people to think that the dollar was a reliable currency for the long-term. If ever there were another crisis, they said to themselves, there would surely be another stiff-necked public servant like Volcker to set it straight.
‘New’ dollar
But now, we’re 49 years into the fake-money system. The printing presses are running hot.
Yesterday, we saw that the interest rate cycle lasts about 60 years. It takes one generation to learn…and another to forget, we summarized.
The last high (in yields) was in 1981. The next high should be around 2040. And somewhere in the middle — about now — the trend should shift from falling rates to rising rates. In other words, rising rates are on the way.
And before that trend ends — in another top in the interest rate cycle…we should see much higher rates of inflation…perhaps even hyperinflation.
Then, in order to escape the financial catastrophe, the feds will probably introduce a ‘new’ dollar…perhaps backed by gold…perhaps some form of digital currency. Who knows?
Formula for disaster
Now, we have passed the point of no return, with no Volcker in sight. And the Trump/Fauci Depression is just coming into view.
Necessity is the mother of invention…but it is also the deadbeat dad of catastrophic mischief. Their backs to the wall, people are ready to do almost anything…no matter how idiotic or preposterous…
Already, barely half of all Americans are working. And no one — neither Democrats nor Republicans — has any plan to deal with it other than printing up more fake money to ‘replace’ the losses they caused and to ‘stimulate’ the economy to return to ‘normal.’
This is a formula for disaster. You’d have to have a Ph.D in economics not to see it.
Stay tuned…
Regards,
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.